7 Things You Didn't Realize Are Happening Every Time You Stream a Song on Spotify

If anyone could do it, it was Drake. Within three days of releasing his surprise mixtape If You're Reading This It's Too Late on Friday, the rapper broke his own record for debut-week Spotify streams with 17.3 million plays — 1.5 million more than his big 2013 album, Nothing Was the Same,got in seven weeks. Drizzy broke single-day records too: His tape logged 6.8 million plays on Saturday alone, and of the album's 535,000 total units moved, fewer than 500,000 came from pure sales, the remainder accruing under Nielsen's new streams-to-sale ratio (1,500 streams equals one album sale). It's one of the earliest true No. 1 albums of the streaming age.

It isn't just Drake, of course. Even as recorded music sales dropped 15% from the first half of 2013 to the first half of 2014, streaming grew by nearly a half, a trend unlikely to halt as Google Play and (eventually) Beats gain steam. Despite complaints from artists and a shaky bottom line, Spotify itself grew from 6 million to 10 million subscribers between March 2013 and May 2014, and the platform hit the 15 million-mark right around New Year's Eve. Which is to say: Until the company goes out of business or somebody (Trent Reznor?) builds a more tenable platform, it will only become more dominant in the music world.

Millions of us use Spotify, but few realize what we're doing to the music industry every time we do so. For better and for worse, streaming music has profound effects throughout the industry. Here are seven things you don't realize every time you stream a song on Spotify.

The rights holder gets $0.006 to $0.0084 per stream.

Or at least that's Spotify's average — but the payout model is more complicated than cents per stream. The actual equation involves Spotify multiplying its total monthly revenue (subscription fees plus ads) by the percentage of total streams an artist accounts for. From that number, Spotify takes 30%, and the rest is divvied up (secretly) between the artist and record label.

The charged component is that popular artists make more while listeners pay the same amount. Taylor Swift's music was pulling in a half-million streams a month before she yanked her catalog from the platform. Drake will do equally fine this month. In fact, any top 50 artist could do A-OK with streaming as a sole source of revenue. Indie musicians, on the other hand, take a hit: Cellist Zoe Keating, who famously published her earnings in 2013, made only $1,764 from 403,035 Spotify streams, $0.002 less per song than the company's low-end average, though that doesn't account for her label's cut. Of course, if you're a crafty indie artist like soul band Vulfpeck, you can turn a loyal fanbase into easy money.

Most of that money goes to the label.

As Spotify CEO Daniel Ek noted in a monster blog post responding to Swift's decision to pull her music from his platform, most of the around $0.006 to $0.0084 Spotify pays in royalties goes to record labels in the form of licensing and distribution fees.

It's unclear how much each artist pays his or her label for licensing and distribution — Spotify doesn't even know — but according to Time, top artists often saw less than 10% with old-biz models like CDs. Swedish entertainment lawyer Per Herrey backs that up, claiming that musicians see 6% to 10% of the 70% cut Spotify pays in royalties, with the rest going to labels for now-needless distribution costs. U.S. Radio royalties, by comparison, are split 50/50 between most songwriters and labels. If Herrey's number holds up, that's about a third of a penny per stream for a lower-to-middle popularity artist.

The environment takes a blow.

According to a 2012 study by Norwegian developer Dagfinn Bach, the energy it takes to send data around the world accounts for 3% to 4% of the world's electric energy — more than aviation. The culprit are massive data farms that require air conditioning but send users the same data over and over again — say, "Happy," the most-streamed song last year. All that streaming adds up even though most people don't think of it as having an environmental impact.

That said, streaming is still less destructive than the factory/K-Mart model — losing the production, packaging and delivery of hard-copy music likely vastly offsets the difference in CO2 production.

Spotify gets smarter.

Like any algorithmic radio, the more you use Spotify, the better Spotify knows you. But unlike its competitors, Spotify last year acquired the Echo Nest, one of the most powerful data-mining tools in modern music. (It also powered multiple Spotify competitors). The tool categorizes music based on both tonal idiosyncrasies and big streaming data — where, when, by whom and even during what types of weather a song is played. It's so good that Spotify last week published an accurate list of its most popular sex songs, which your Beatles vinyl will probably not do.

You spend more money on music than you would have 15 years ago.

Source: Getty Images

For all the chest-pounding from Ek re: Spotify's $10/month subscription fee — "It's like two beers," he toldBloomberg last year — $120 a year is almost double what the average music buyer spent in 1999, the peak of the recored music business.

Factoring in non-buyers, that number falls to a third of Spotify's cost. Today, the best comparison is an iTunes user, who downloads only $48 of digital music a year. That's not to say you don't get more for your dollar with Spotify — but the marginal utility gets profoundly out of whack. There are only so many songs that can mean something to you at a time.

Sales fall lower than they did during piracy.

Source: Getty Images

Despite Ek and Co.'s conviction that Spotify saved music from piracy, the truth is that record sales are worse today than they were during piracy's apex. In fact, save for slight upticks in 2004 and 2012, U.S. music sales have fallen steadily since 1999, nine years before Spotify launched.

At Napster's peak in 2001 (26.4 million users), U.S. music sales were around $13 billion. By Spotify's launch in 2008, that number had fallen to $7 billion (not adjusted for inflation). By 2013 it was down to $5 billion, and the Recording Industry Association of America reported a 5% drop in 1H 2014 sales to 3.2 billion (not adjusted for inflation).

Of course, piracy has declined too, and streaming has undoubtedly played a role in that. As Ek will gladly remind us, Spotify puts money where there was previously theft. But given those $.006-per-stream payouts — as opposed to iTunes' around 8 cents a download — Spotify is far from saving the biz and further from saving artists.

Everybody outside the top 40 gets squeezed.

For all its strengths and flaws, Spotify is a petri dish for homogenous pop. Because the platform charges users a fixed rate but pays artists based on their chunk of total streams — as opposed to letting listeners decide which fixed-rate songs to buy — artists with any sort of niche audience are taking a beating. Music that once drew a small but loyal fan base now competes with Drake, et al. for its chunk of subscription fees, collected and redistributed as Spotify sees fit.

The danger, of course, is losing the good stuff — the musicians who were once able to sell half-directly to fans but are now barely cutting through the din. As for the solution, well, $60 a year on purchased music seemed to be working in 1999.

Correction: Feb. 23, 2015

An earlier version of this article used the blanket term "artists" to describe songwriters in discussing U.S. radio royalties. It has been updated to clarify that, in the U.S., radio royalties are distributed to the label and the songwriters, not the performers.